- 11
It is the Government's aim to enhance Hong Kong's status as a regional insurance centre and the development of captive insurance business has been identified as one of the means to achieving this. We believe that the development of captive insurance would promote competition in the market place and provide a wider range of insurance options. Moreover, the establishment of captive insurance companies would also bring about an inflow of capital funds and new business, and also provide additional job opportunities.
To encourage multinationals and overseas conglomerates to set up captive insurance companies in Hong Kong, we propose to relax some of the regulatory requirements under the Insurance Companies Ordinance. The proposed regulatory concessions include the lowering of the minimum paid-up capital and solvency margin requirements, and exemption from the local asset requirement and the valuation regulation.
The proposed concessions are considered appropriate because a captive insurance company only underwrites business from its group companies and no outside parties are involved. To ensure that the protection afforded to third party claimants under compulsory insurance requirements on employees' compensation, and motor and vessel liabilities insurance in respect of risks located locally, a captive insurance company is not allowed to underwrite such business, even from its own group. We believe that our proposal strikes a balance between our wish to be competitive on the one hand and the need for maintaining the integrity and reputation of Hong Kong's regulatory regime on the other.
The Bill also empowers the Insurance Authority to make regulations to specify professional standards to be observed by an Appointed Actuary of a long term business insurer and to monitor the compliance with such standards by the actuaries. This proposal will enable the Insurance Authority to implement the full-fledged Appointed Actuary System, such as that practised in other jurisdictions whereby the Appointed Actuary is not only responsible for valuation of liabilities but also for reporting on other aspects of the financial condition of the business such as reserving and investment policies. This will enhance the protection of policy holders.
The opportunity is also taken to incorporate the detailed provisions of the Life Assurance Act 1774 of the UK into the Insurance Companies Ordinance. This Act requires that a person taking out an insurance contract must have an insurable (pecuniary) interest in the life or event insured. Such requirement is an important safeguard against abuses by policy holders whose motives are to profit from wagering on lives and events which they have no insurable interest. The Act currently applies to Hong Kong through the Application of English Law Ordinance. It is however referred to by title only in that Ordinance and it would be tidier and more transparent if the detailed provisions of the Act are incorporated into the Ordinance itself.